On June 2nd, the European Commission published its communication on regulation of the collaborative economy, as part of a commitment under the Digital Single Market initiative to review the regulatory environment in which the sector operates.

The collaborative economy holds much promise, but regulators and disruptors must work together to understand and optimise its impact.

On June 2nd, the European Commission published its communication on regulation of the collaborative economy, as part of a commitment under the Digital Single Market initiative to review the regulatory environment in which the sector operates.

Though non-binding, the communication is broadly supportive of the sector, endorsing what it calls a “flexible” approach to regulation. It recognises the potential for the creation of new forms of employment, as well as the potential for wider societal benefits, such as increased consumer choice or better resource management. It also describes bans, such as the one put in place in Berlin in May, when city authorities there outlawed the rental of entire properties to tourists, as “difficult to justify” and appropriate only “where no less restrictive requirements to attain a legitimate public interest objective can be used.”

The collaborative or ‘sharing’ economy sector has seen an explosion of activity in recent years, as the ubiquity of the smartphone has brought with it the means to offer tailored access to a range of services. It is, potentially, a very sizeable market, worth an estimated €130 – €570 billion in the European Union alone, depending upon the extent of the regulatory challenge.

But uncertainty has abounded over how such service providers should be categorised under EU law and whether they should be subject to various market access requirements. Such categorisations can also have important implications for determining the existence of an employer-employee relationship and corresponding legal rights. Concerns have been expressed too over the negative disruptive impact of such disintermediation, in terms of access to housing provision for example, as well as employment more generally. In this policy vacuum, EU member state authorities have been forced to act on an ad hoc basis.

Much of the communication hinges on definitions and distinctions, such as that drawn between provision of services on an occasional, peer to peer basis and provision of services on a regular, professional one. This varies across member states, but in the eyes of the Commission if a collaborative platform provides a service that is “normally provided for remuneration, at a distance, by electronic means and at the individual request of a recipient of services”, it should for the most part be free from market access requirements.

However the Commission also notes the importance of the level of control exerted by the platform over the service provider in terms of price, key contractual stipulations or ownership of assets in determining whether or not the platform is the ultimate provider of the service. Furthermore, it leaves open the question of legal liability for the most part, suggesting it will have to be “established on a case-by-case basis”. It is less ambiguous about taxation; companies operating as part of the collaborative economy should pay tax like all other companies.

What next?

The Commission has stated that it recognises the immense potential of the sharing economy, as well as the need to provide the sector with greater levels of support. Indeed, the communication contains an acknowledgement that “compared to US platforms operating in the US, EU platforms operating in the EU face several barriers to their development.” However, as noted by Commission Vice-President, Jyrki Katainen, it is equally aware of its obligation to protect consumers and ensure “fair taxation and employment conditions”, as it seeks to create the appropriate regulatory conditions around what is a rapidly developing sector.

The qualified nature of the Commission’s support for the collaborative economy has much to do with its regulatory function, but this is also due to a lack of data from which to draw conclusions about the net effect of such disintermediation. In a sub-section of the communication entitled Challenges for Official Statistics, the Commission cautions that the collaborative economy “has an influence on economic development that goes far beyond the platforms themselves [and] the net impact on employment still has to be better understood, as well as the structural impact…on the overall labour market.”

In recent years, it has become increasingly clear that there may be socio-economic dynamics at work in the collaborative economy, and the digital economy in general, that are not being adequately captured by traditional economic metrics. In March, former deputy governor of the Bank of England, Charlie Bean, drew attention to this with the publication of the Bean Report, in which it was suggested that many economic metrics in use today were designed for a time “when the economy was dominated by goods [and] not services.”

In relation to the collaborative economy, often there either isn’t enough of the right type of data available, or what data there is is not being collated effectively enough to determine whether companies like AirBnB or Uber are creating more jobs than they are eliminating, or the extent to which they are driving down wages. This data deficit also makes it difficult to assess some of the more dubious claims coming from within the sector, such as that made by Uber that it has helped to reduce drink driving rates.

As digitisation continues to spread, the need for new and improved measurement methodologies, as well as collection and collation of better data, will increase. The communication calls for greater cooperation between collaborative economy actors and Eurostat in order to meet this need, and through this, optimise regulation.

European policymakers are well aware of the potential benefits of the collaborative economy, and digital technology in general. But the ultimate function of regulation is to provide a basic level of fairness and security for as many EU citizens as possible. Collaborative economy entrepreneurs looking for understanding and support for their business models would therefore do well to heed the Commission’s call, and work with regulators in order to help shape the emerging regulatory frameworks.

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